SPY Put Diagonal
This is my incomplete trading plan for scalping the SPY via short dated put diagonals.
Conditions for entry:
- Assumption that the price will drop within the next 24 hours
- This can be whatever method works best for you
- Personally, I've been using a combination of the Bollinger Band 20 period and the Hull Moving Average 20 period. On a 5 minute chart I Look for the HMA to be near the upper BB and price to close below it. I haven't refined it yet, but I try look for at least one other indicator to confirm. Whether it be a reversal candle, trendline, opening price or previous high retest, etc...
- Sell the 40 delta (often the first out-of-the-money strike) in the next expiration, 1 or 2 DTE. Go out two expirations and buy a put to make the spread $5. Pay no more than ~$4.50.
- Depending on the debit, place a GTC for $5.25.
I'm still working on management of this trade. I've not been very good at logging these trades and will try to begin doing so here so that anyone who is interested can follow along and learn with me. I welcome any and all feedback.
Reasons I have chosen this route:
- Low capital requirement
- Good return on risk
- High probability of profit
- TastyWorks analysis tab gives this setup ~80% P50 score (That's 80% of monte carlo simulated runs resulted in at least 50% of profit at expiration. Here, the max profit for the P50 would be width of the spread minus debit. e.g. $0.50 if I paid $4.50)
- In my larger virtual account, this makes for a nice hedge when placing SPX 1DTE spreads.
Thanks for this.